Outcome led
procurement
A common sense
approach to
construction
procurement
Contents
1 Outcome led procurement
2 Introduction
2 Understanding value
5 Identifying your desired outcomes
6 What are the risks?
8 Treat design and construction as a joined up process
11 The importance of behaviour
12 Making your procurement more effective
This guide has been produced by Constructing Excellence
South West’s Procurement Forum led by their drafting team of
Martin Howe of Keystone Law, Robert Knight of igloo Regeneration,
Stewart Pitteway of Capita, Ian Dacre of Rider Levitt Bucknell,
and Martyn Jones of CESW.
B Outcome led procurement
1Outcome led procurement
Before you procure any construction related services,
whether you are the ultimate client or are within
the supply chain, consider what outcome you
want to achieve before you procure. You cannot
expect to get satisfactory outcomes unless you
plan your procurement to achieve those outcomes.
Procurement needs to be carefully considered,
not simply repeated from a previous project.
Constructing Excellence South West 1
2Introduction
2.1The importance of construction projects
– construction projects cost money, often lots of money.
How clients go about procuring them can have a big effect
on that cost and, more importantly, on the benefits the
project realises relative to that cost. Within the supply chain,
large sums of money are also spent procuring services from
specialist contractors. How much of this procurement is
simply conducted on the basis of lowest price tendering,
with little or no consideration of what additional benefits
those tendering might be able to bring?
2.2 The lure of the short-term view
– most construction projects will be expected to provide
benefits for many years following their construction.
However, the short term view has much appeal: what is
the cheapest cost for delivering the project NOW. Will I even
be around to see the longer term benefits of the project?
And, even if I may be, will anyone consider how better the
project could have been if we had spent more time
considering how the completed project would be used?
Similarly, subcontracts are let on the basis of THIS project,
not the potential future projects where a specialist may
be able to work with a contractor to provide a competitive
advantage to the contractor in winning future work.
2.3Lowest price competitive tendering provides
best value
– it doesn’t, not unless you know exactly what you want, the
design is well developed, the risks of delivery are clear and
manageable and can be accurately priced at tender. The
more aggressively price competitive your approach, the
greater the likelihood of claims from your suppliers and
higher outturn costs. Construction organisations that work
for you need to make a profit to stay in business and whilst
some may not achieve this result, all will try their hardest –
jobs and future career paths depend on it. For a fuller
discussion of the risks of lowest price tendering,
see the Constructing Excellence publication
The business case for lowest price tendering?1.
1
onstructing Excellence – The business case for lowest price tendering?
C
produced by a task group of Ken Odgers, Steve Rownsell, Kevin Thomas
and Don Ward updated in April 2011.
2 Outcome led procurement
3 Understanding value
2.4Lowest price competitive tendering
is the easy option
– it is! Just invite a selected or general group of relevant
organisations to bid their prices for the advertised
opportunity, pick the lowest or (if you are not affected
by the public procurement rules and you don’t trust the
lowest) the bid you think is the most realistic and off
you go – enter into the contract and wait for them to
deliver (see paragraph 2.3 above!).
2.5The intended use of this guide
– the important starting point for using this guide
is that you consider what outcomes you want to
achieve and plan your construction procurement
to best achieve these outcomes. This guide raises
some common sense considerations that underpin
successful projects, i.e. projects that meet client
objectives at a cost that provides excellent value,
delivered in the required time frame. It is not intended
as a ‘how to’ guide to construction procurement, nor as
a one stop solution to delivering successful projects.
Rather, it is intended to make you think whether your
current approach to procurement is achieving the
outcomes you want from it.
3.1Value has been described as ‘What you get’ compared
to ‘What you give’2 or in simpler terms: the benefit relative to
the cost.
3.2The ratio between building costs and business
benefits
3.2.1 In 1998, the Royal Academy of Engineering published
a paper based on research carried out on the London office
market3. This identified a ratio of 1:5:200 – ‘1’ being the
construction costs, ‘5’ being the operating and building
maintenance costs over a 20 year period, and ‘200’ being
the business operating costs (including staff costs) over a
20 year period. In other words, the cost of the building was
a two hundredth of the cost of carrying on business from
the building. Looked at from another angle, most clients
fixate on the construction costs (the ‘1’) rather than looking
at how they can reduce the operational and maintenance
costs (the ‘5’), much less looking at how they can reduce
the costs of carrying on business through a building that
better meets their needs (the ‘200’).
3.2.2 Industry commentators have expressed different
opinions as to the correct ratio for different types of project.
NHS Estates came up with a ratio of 1:4.5:42 for health
projects and Richard Saxon reckoned that a ratio
of 1:3:30 might be more realistic in the office market4.
However, all have arrived at ratios where the business
benefits are many times greater than the construction costs.
The underlying message is that we spend too much effort
on keeping the ‘1’ as low as possible and very little, if any,
time addressing the ‘5’ or the ‘200’, yet the long term costs
of the building will many times outweigh the initial capital
cost.
3.2.3 Including design and management and the
value added by occupier organisations (based on
the discussion set out in Richard Saxon’s Be Valuable
publication) we can draw the following diagram:
Richard highlighted that the design and management cost
was typically 10% of the construction cost. At the other
end of the process, he suggested the value added by the
occupier organisation would typically be 25-100% more
than the business costs referred to in the Royal Academy
of Engineering paper.
Business
costs
Even with a reduced ratio of 1:3:30 (see paragraph 3.2.2
above), including the impact of design (traditionally around
10% of the construction cost – the ‘1’) provides a sobering
ratio of 1:300, i.e. the cost of the design and management
of a project (0.1 of the construction cost) affects the overall
value of the project (the ‘30’). If the value added by the
occupier organisation may be 25-100% more than the
business costs, design and management costs could
be contributing to the potential business benefits at a
staggering ratio of 1:600.
Operation &
maintenance
Design
The arrows in the above diagram highlight a further
consideration which is the potential for feedback from users
of how buildings work in practice so that these lessons can
be applied in future projects (the bottom arrow labelled
‘User pull’). If clients could better capture this feedback,
in addition to the usual process of trying to consider what
might provide the most valuable outcomes through the
development of the design (the ‘Process push’ arrow),
there might be a significant increase in the value realised
from projects5.
Construction
Outcomes
Process push
Be Valuable – A guide to creating value in the built environment
by Richard Saxon (2005)
2& 4
3
User pull
The Long Term Cost of Owning and Using Buildings
Consider the use of a ‘soft landings’ approach where feedback is
provided to designers following occupation of new or refurbished
space to learn and lessons that can be applied in future designs.
The Building Services Research and Information Association
(BSRIA) guidance on soft landings can be found at www.bsria.co.
uk/services/design/softlandings. Separate ‘Government Soft
Landings’ guidance is provided by the Building Information
Modelling (BIM) Task Group at www.bimtaskgroup.org/gsl-policy
5
Constructing Excellence South West 3
3.2.4 A real-life example of this principle was a call centre
operator who, over a number of projects, had reduced the
cost of constructing new call centres. However, a major cost
to the call-centre industry remained the high rates of staff
churn. So, the operator sat down and considered how future
call centres could be designed to provide a better working
environment, engaging with the staff to better understand
how they viewed their working environment. The results
of this consideration was a new model of call centre with
much greater attention paid to staff comfort and the internal
operating environment. The next call centre followed this
model. It cost more (though not significantly more) than
the previous call-centres. However, the effect on staff moral
and employee retention was dramatic, with the operator
making savings in business costs many times greater than
the modest addition to the design and construction costs
due to the reduction in the costs of staff churn.
3.3 Predictability is valuable – whether you are the
ultimate client, or a member of the supply chain procuring
subcontract services, the outcome you need is a predictable
outcome. If the outcome you get is a much increased cost
or programme or a failure to achieve the required level
of quality, it is of no assistance that you picked the lowest
tendered cost. If you are working to a fixed budget, ensuring
an outturn cost that is within this budget is vital. Ask yourself
the question – how confident are you that the tendered
prices will not change and what evidence have you looked
for to provide you with greater confidence that tendered
prices will be deliverable?
3.4 The inability to address value by lowest price
competitive tendering – lowest price tendering is addressing
only the ‘1’ in the above ratios. Consideration of which
solution may offer the most energy efficient solution or
provide the lowest operating and business costs is not
possible. Added value is not considered.
4 Outcome led procurement
3.5. How to address adding value
3.5.1 At tender stage, set out what you are looking to
achieve (your desired outcomes) and give bidders the
opportunity to put forward their proposed solutions to meet
your desired outcomes backed up by their experience of
doing so for others. If you don’t ask, you will never know
and you will unlikely get any subsequent opportunity
to add value.
3.5.2 Set out the evaluation criteria that will be applied to
enable bidders to understand the importance that will be
given to their answers. If these are not set out, there will
almost certainly be a perception that lowest price will be
the key determinant.
3.5.3 In order to consider adding value, project participants
need to be engaged early enough to influence the outcome
of the project (see paragraph 6.2 below).
3.5.4 Competition based on value can be a positive force
to encourage innovation, improvement and added value.
If your procurement seeks to find the tenderer with the best
value solution (i.e. the most value relative to cost) or the
best likelihood of delivering the best value solution, think
how tenderers will demonstrate the value of their proposals
and how you will evaluate this predicted value relative
to the predicted cost. As an example, consider how you
would procure an energy efficient, rather than lowest cost,
heating and cooling system for your project?
4Identifying your desired outcomes
4.1. What are your desired outcomes? – in order to
be able to get what you want, it is essential to articulate the
outcomes you need. It is also important to prioritise these
outcomes. The usual considerations of ‘cost’, ‘time’ and
‘quality’ provide a useful starting point – and, as most
advisers will tell you: “pick any two, but don’t expect to get
all three”! For your particular procurement, which of the
time, cost and quality outcomes are most important?
Recognise that some of your desired outcomes will need
to be compromised, for example to ensure a proposed
design solution remains affordable. This is where it is
important to distinguish between ‘needs’ and ‘wants’.
In other words, what is absolutely essential and what would
be ‘nice to haves’. If you can make this distinction, you will
be in a better position to make decisions based on what
will best achieve your needs and not find yourself having
to compromise the outcome because you included all the
‘nice to haves’ before realising that this was unaffordable.
As explained in paragraph 6.4, the ability to make design
changes that will affect the outcome of the project
becomes more difficult and costly as a project progresses.
Every project/procurement offers the opportunity to
achieve better outcomes. Don’t spurn that opportunity.
4.2. What are your constraints? – alongside the
development of your desired outcomes, identify your
constraints, whether budgetary, time deadlines or
minimum quality standards (e.g. to comply with
particular statutory or industry requirements). These
need to be factored into your outcomes so that there is a
complete picture of positive and negative ‘requirements’.
4.3. Accepting compromise – if you cannot, or are
unlikely to, achieve all of your desired outcomes given
your constraints, be realistic and adjust your desired
outcomes so that they remain realistic. There have
been far too many projects (including many high
profile buildings – think Scottish Parliament Building
for example) where the desired outcomes have
become completely out of step with the constraints
(most often the budget).
Constructing Excellence South West 5
5What are the risks?
5.1.Your risks – the biggest risk is getting an outcome that
doesn’t meet your desired outcomes – if you don’t get the
project you need, you will live with these consequences
for as long as you occupy or own the completed project.
The related risks of a project that ends up over budget or late
(or both) may be less serious (unless you are procuring for
a fixed event like the Olympics) because the consequences,
whilst painful in the short-term, will probably be forgotten
in the medium term.
5.2. Macro-economic risks
5.2.1 The construction industry has traditionally mirrored
the ‘boom and bust’ cycles of the wider economy.
In recessionary times, the supply of constructors and
designers is likely to be greater than demand with the
tendency for tender prices to reduce. In reflationary times,
construction demand outstrips construction supply, leading
to shortages in resources (both labour and materials) and
inflationary pressures. Sometimes individual parts of the
construction economy may experience the boom or bust
cycle before other parts – e.g. the housing market may
experience demand exceeding supply before the
commercial office market.
5.2.2 The lessons of successive recessions should have
taught that exploitation of lowest price tendering does not
guarantee lowest outturn costs. Far from it. Lowest price
may well represent ‘least considered price’ and whilst some
will undoubtedly secure a bargain, many more will take on
a struggle with designers who want to spend the least time
possible in arriving at their design and contractors who
are continually looking for ways to claw back a margin
from contractual claims and bullying their subcontractors.
Be aware too that organisations focusing on how to reduce
their commitment to a project or claw back a margin are
unlikely to be giving their full attention to how best to meet
your objectives.
6 Outcome led procurement
5.2.3 In times of relative ‘boom’ the balance of power lies
with the supply chain who may have plenty of opportunities
to bid for work and became more discerning in the projects
they bid for. They will probably also have a much reduced
appetite for taking on risks they cannot control, so seeking
to pass risks that cannot be easily priced is likely to lead to
one of two responses: unwillingness to tender or tendering
prices with very full risk allowances (see paragraph 5.4).
5.2.4 There will not be a lot you can do as a client about
the economic conditions but they do need to be taken into
account when considering your procurement strategy.
5.3 Project-specific risks – it is important to consider
project specific risks that may adversely affect the successful
outcome of a project. For example, if there is a risk of
adverse ground conditions affecting the time and cost of
the project, regardless of whether the client or contractor
will ultimately be contractually liable for these consequence,
steps need to be taken to identify the extent of the risk and
mitigate or remove the potential adverse consequences.
The starting point may be obtaining a ground investigation
report, which may remove the risk (if the report reveals no
adverse ground conditions), or at least allow the risk to be
mitigated (e.g. adopting a different foundation arrangement
to overcome the specific adverse ground conditions).
The main project specific risks need to be identified and a
strategy adopted for mitigating them, bearing in mind that
passing the risk to someone else (e.g. the main contractor,
or to a supply chain member) does nothing to manage
or mitigate the risk. Keep in mind too that you need to
concentrate on the major risks not waste time identifying
every minor risk as well; adopt a ‘Pareto’ approach and
concentrate on the 20% of risks that are likely to cause
80% of the potential adverse consequences.
5.4 Risks and pricing – the construction industry is used
to seeking lump sum ‘prices’ for the provision of construction
works or services. Every ‘price’ will represent a compendium
of the following elements:
•Margin – the return that the organisation needs to make
in order to remain in business;
•Risk allocation – the contingency included to cover the
adverse consequences of foreseeable (and unforeseen)
risks – note this may often be ‘disguised’ as a programme
allowance: e.g. a task that should take 4 days is shown as
6 days. Note too the comments in paragraph 5.5 below);
and
•Actual costs – the estimated actual cost of the plant,
labour and materials required to perform the relevant
works or services.
Usually, pricing takes place before the extent of the risks are
known – consultants are engaged on fixed fees before they
are able to judge what time commitment will be needed to
develop a ‘solution’ to meet the client’s requirements, and
what liaison will be necessary with others; main contractors
usually have to price the construction risks before they
have any opportunity to fully understand what they are and
subcontractors are often placed in exactly the same position.
In competitive market conditions, this often leads to risks
not being adequately priced; in less-competitive market
conditions, this may lead to risks being over-priced, both by
the main contractor and the subcontractors. In either market
conditions, there is likely to be a duplication of risk pricing
in both the main contractor and subcontractor prices.
However, neither are likely to have investigated the risks
and identified the steps for their mitigation. The result is that
the risks can still have a major impact on the progress of
a project (and its cost) notwithstanding that they have
supposedly been priced for by more than one organisation.
5.5 The Client bears all the risks all the time!
– this may come as a shock to you but is recognised by
many serial construction clients and is borne out by reality.
If a risk occurs that affects the progress of a project, the fact
that it is the contractor’s risk may prevent the contractor
claiming additional money and/or seeking an extension
of time, but does not insulate you, the client, from the
consequences: if the project is delayed, it is the client who
will ultimately suffer (an entitlement to liquidated damages
rarely providing compensation for all the costs suffered).
And, if the contractor’s costs increase, the contractor will try
to recover those costs by maximising opportunities to claim
additional payment under the relevant building contract.
In the meantime, if there is any adverse publicity regarding
the project’s problems, it will almost certainly be the client’s
name which is mentioned first – remember the Tesco
supermarket development at Gerrard’s Cross where the
tunnel over the Chiltern line on which the new store was to
be constructed collapsed. It was little comfort to Tesco that it
had legal remedies once it could prove responsibility for the
collapse, it was suffering the financial consequences of the
delayed store opening and grabbing the headline attention
(the press coverage did not mention who the contractor
and consultants were).
For further guidance on managing risks with the assistance of a risk
register, see the Constructing Excellence Guide to Risk Management
[Constructing Excellence, 9/3/04 available for downlaod at
constructingexcellence.org.uk/wp-content/uploads/2015/03/risk.pdf)
6
5.6. How your risks are managed in practice
5.6.1 With some honourable exceptions, risk management
on most construction projects is poor to non-existent. This
may reflect two underlying misconceptions which clients
should be aware of and seek to better manage:
•risks that have been ‘priced’ by consultants, contractors or
subcontractors do not need to be managed by the client/
his advisers because someone else will be responsible for
the consequences (see paragraph 5.5 above!);
•most risks cannot be managed by a single organisation
without co-operation and assistance from others. Take the
case of ground conditions – having identified that there are
adverse ground conditions on a site, the contractor (or the
groundwork subcontractor) may be able to take steps to
mitigate the risk by including risk contingencies in their
prices for the extra work that may be required. Whether
these contingencies are adequate will be largely guesswork,
and the client will pay the additional contingency whether
or not any risks materialise. A cheaper solution may be to
change the foundation design to overcome the adverse
conditions. However, this will probably involve not just the
client and main contractor but also the structural engineers,
specialist subcontractor and probably the cost consultants.
You need to be aware of these issues so that, once the facts
are known, you can make decisions in the best interests
of achieving your desired outcomes. Alternatively, you
may need to bang heads together to deal with a risk rather
than hoping it will go away or arguing over who will be
responsible if it does occur.
5.6.2 The starting point on any project should be a
requirement for project participants to maintain an up to date
project risk register, even where the consequences of some
of the listed risks are contractually either the client’s or the
contractor’s responsibility6. If risks do occur, the focus needs to
be on collective mitigation of the consequences, not individual
allocation of blame. The situation is often not helped by
consultant professional indemnity insurers, whose first advice
is normally along the lines of ‘don’t admit any responsibility
for what has happened and don’t by your actions make it look
as though you may be even partly responsible!’
Constructing Excellence South West 7
6 Treat design and construction as a joined up process
6.1.The historical separation of design and
construction
6.1.1 Unlike other manufacturing industries, construction
has maintained the historic separation between consultant
designers and contractor/subcontractor constructors, even
though the specialisms necessary to design many elements
of a project now rest with specialist subcontractors.
Although the concept of ‘design and build’ has been around
for very many years, rarely is the contractor given a genuine
output specification and told to go off and design and build
a solution that meets the required outputs. Usually the client
will have engaged consultant designers to start the design
process, not least so that the client can be satisfied with the
aesthetics of the design before anyone starts building it.
At some stage, when the client is happy that the design
(or at least what the client understands about it), it can be
handed to a contractor.
6.1.2 When tendering for construction or design and
construction opportunities, contractors are rarely given
the opportunity to understand the existing design whilst
tendering. Only after selection can the contractor spend
the necessary time, and engage the necessary specialist
subcontractors, to fully consider the design to see whether
it will work and how it can be constructed. However, by this
stage the contractor will already have committed to a price
to complete the project. Not surprisingly, price will be a
major concern in selecting subcontractors because the
contractor’s margin will depend on selecting subcontractors
who are able to deliver the project for less than the price
quoted to the client. They too will usually have to price
for their input before they have an opportunity to fully
understand what they are pricing. In times of economic
‘boom’ contractors and subcontractors may be able to
add risk elements to their prices to try to cover this lack
of understanding. In times of economic downturn, the
inclusion of adequate risk elements will not be possible if
the work is to be won. Under neither boom nor downturn
conditions will the contractors or subcontractors understand
the risks they are attempting to price or have the means to
manage these risks. The design and construction process
8 Outcome led procurement
has now become a commercial battle ground to safeguard
profit margins rather than a focus on ways in which the
design and its construction can better meet the client’s
desired outcomes.
6.2 Early engagement of contractors and relevant
specialist subcontractors
6.2.1 The design process is an iterative process that moves
from an understanding of what the client wants to putting
forward proposals that provide an outline solution to meet
the client’s requirements. This is then developed and
becomes more detailed. Traditional wisdom suggests that
consultant designers can develop designs to be ‘fully
detailed’ such that any contractor can simply look through
the drawings and specifications and fully understand what
is required, how much it will cost, and how long it will take,
to deliver. The reality is not so simple and there will almost
certainly be ‘gaps’ in any consultant design as a result of:
•not providing sufficient detail to enable the construction
of all elements of the project (e.g. the drawings show the
windows in position but do not show the detail of how
they are to be installed so as not to compromise the
water-tightness of the external cladding); or
•simply providing performance or outcome specifications
of the performance that is required of certain building
elements, leaving it to a contractor and specialist
subcontractors to work out the detail of how to meet
the relevant performance. The heating and cooling
arrangements for a project are commonly expressed as
performance specifications, leaving the contractor and
the specialist mechanical and electrical subcontractor to
complete the detail of e.g. pipe runs and the specification
of boilers/chillers to achieve the requirements of the
performance specification;
•lack of coordination between consultant designers
(e.g. the design of the structural steel frame is based on
different design software to the architect’s elevation
drawings with the result that the steelwork and room
layouts cannot be co-ordinated electronically).
6.2.2 A way of identifying the above gaps is to engage
a contractor and key specialist subcontractors before the
design is completed. As well as spotting gaps, they can
provide input into how the design can be constructed, how
performance requirements can be met and minor changes
that can be made to the design to make the construction
cheaper, quicker and/or predictable. This is particularly
useful in relation to mechanical and electrical elements of
projects which are often left to be designed during a busy
construction programme. The opportunity to develop the
solutions to meet these performance specifications during
the design phase makes the delivery of these solutions
much easier to plan, price and implement, reducing the
likelihood of gaps emerging during the construction period
when they will be more time consuming and costly to
resolve.
6.2.3 A real life example of the potential savings that can be
made is provided by a project that involved the installation
of a complicated heating and cooling system. By engaging
the specialist supplier in the design of the system it was
possible to change the proposed layout to reduce the
lengths of piping required by 70% and the cost by over 25%
– many times greater than any competitive advantage
that could have been achieved by competitively tendering
this package. Furthermore, because the design had been
developed by the organisation that would install the
component parts, the installation could be pre-planned
with further saving of time.
Constructing Excellence South West 9
Furthermore, the concern that the price may be higher than
it could have been if it had been competitively tendered is
focusing on the construction price being the most important
consideration – the ‘1’ in the ratio of project cost relative to
the much greater potential benefits.
10 Outcome led procurement
6.4 The impact of design changes on time and cost
The graph illustrates the relationship between the
development of the design for a project (the red line) and
the construction cost of the project (the blue line): in the
very early stages, changes to design can be made without
a significant impact on the construction cost, whereas later
design changes can be very costly, not least because of the
consequential changes.
Price
6.3 Early engagement of contractors (‘two-stage’
engagement) is more expensive – a popular view
amongst many clients and their advisers is that two-stage
engagement of contractors is more expensive than simply
getting contractors to price for the construction of the
project (‘single-stage’ procurement). This is based on the
experience of clients and their advisers having to actively
engage in considering risks and their impact on construction
costs rather than being able to rely on an assumption that
all of these risks would have been considered and more
competitively priced in a global risk allowance whilst the
contractor was still in competition with other contractors
under a single stage procurement. Yes, a single stage
procurement involves less input from clients and their
consultants and is ‘easier’ but no, it doesn’t follow that the
resulting outturn construction cost will be higher. Would
you have greater confidence in the construction price
rendered transparent through open-book accounting and
a programme provided by a contractor who has been fully
involved in the design process and understands what has
to be constructed, or the price and programme put forward
by a contractor who has had a few weeks to understand a
pile of design documents, whilst in competition with other
contractors?
S
D1
D2
Consider the following example:
•in the early design stage, moving a reception desk from
one side of the main entrance to another can be achieved
by simply changing the lines on the architect’s drawing,
say, £10 cost;
P2
P1
•during the detailed design stage, the same change may
involve changing separate structural and building services
drawings and result in relocation of lighting, heating and
power connections, say £100;
•during the construction stage, all of the above changes
will be necessary with the further likelihood that the
drawings from specialist subcontractors will need to be
changed with the client also having to pay the contractor’s
resource costs whilst these changes are agreed, say,
£10,000;
•if the changes are not carried out, the implications of
having the reception desk on the ‘wrong’ side of the main
entrance may lead to difficulties recruiting and retaining
receptionists who are unwilling to suffer the draughts
from the main entrance and the isolated position of the
reception desk, say, £100,000.
Q1
Q2
Quantity
7 The importance of behaviour
7.1 Setting the tone for the project – the way in which
you go about the procurement of a project can have a
profound effect on how participants relate to you and your
project and the resulting success of the project. Competition
with limited information about the risks you are seeking to
pass will set the tone for a commercial battle to safeguard
margins and pass on risks to others. Achievement of greater
benefits from the project will be unlikely: consultants will not
want to do more work than their fee covers and will happily
pass on risks to the contractor and the contractor will happily
pass on risks to the supply chain even though they may be
unable to manage these risks.
7.2 Working collaboratively is not optional – it is
impossible to design or construct anything without close
collaboration between those designing and constructing
the project. This applies to the management of risks as well
– no single organisation can properly control project risks on
their own, it requires a team approach, albeit that individual
organisations may have ultimate contractual responsibility
for the consequences of specific risks. Collaboration is not
a doctrine that has to be bought into with handshakes and
smiles, it is a hard fact of successful design and construction
activity.
7.3 Treat project participants as you would like to
be treated – it has been demonstrated from numerous
scientific studies that people give of their best when they
feel valued and trusted. This is simple human nature and
the reason why most serial clients tend to work with the
same consultants and contractors with whom they develop
a greater mutual understanding and trust. In turn, the
consultants and contractors develop a better understanding
of the client’s needs and the means to better achieve them.
7.4 Seeing others’ points of view – consider your
project from the view point of its participants – are they
being encouraged to give of their best for your project or
are they more likely to be embroiled in a battle to safeguard
margins in the face of risks that they cannot control?
7.5 The importance of the supply chain – on most
construction projects, subcontractors are likely to be
responsible for around 80% of the construction cost of the
project, so it is important that they too are procured in a
way that allows them the best chance to contribute to the
project. Consider the comments in paragraph 6.2 regarding
the benefits of early involvement of contractors and any
key specialist subcontractors and be open to the reality
that early engagement can provide far greater benefits
to your project than the competitive tendering of these
opportunities could possibly give. Put yourself in the shoes
of the relevant contractor or specialist subcontractor – would
you be willing to contribute all your best ideas if you knew
you would have to win a lowest price tender in order to
actually carry out the work? Whilst the client may not be able
to control the way in which subcontractors are procured,
the client can set the tone for how they should be procured
by setting this out at the time of tendering for a main
contractor, and (directly or via the project manager) check
how individual subcontractors have been treated. Too often,
the project manager can be the driver of price competitive
tendering for supply chain members in the misguided belief
that this is providing best value for the client.
7.6 Don’t lose sight of delivery – a failing of many
attempts to adopt ‘partnering’ or ‘collaborative working’
in the past has been a focus on the cultural issues at the
expense of project delivery: successful projects rely on
both but it is not enough to have one without the other.
All project participants must be focused on successful
project delivery that meets the client’s desired outcomes
and all must be accountable for delivering what they
promise.
Constructing Excellence South West 11
8 Making your procurement more effective
Most of the procurement in the construction industry
is based on the misguided premise that lowest priced
tendering produces best value. The industry is fixated
with competitive ‘prices’ and trying to maintain margins
without effectively managing risks. Are you guilty of
procuring projects in this way?
If you are procuring a construction project, ask yourself
the following questions:
•Do I know what I want and have I clearly expressed
this to those I want to deliver my project?
Have I distinguished between ‘needs’ and ‘wants’?
•Putting myself in the shoes of those who I want to
design and deliver my project, are there risks that
they cannot control which I am asking them to price?
If so, is there anything that can be done to remove
or mitigate those risks? If these risks haven’t been
removed, what comfort do I have that they are being
properly managed and will not adversely affect the
outturn cost, time or quality of the project?
•How do I make sure that the design is complete
and buildable before construction starts and how
do I best safeguard the predicted outturn costs,
programme and quality?
12 Outcome led procurement
Albert Einstein defined insanity as “doing the same thing
over and over again and expecting a different result”.
He also observed that “a person who never made a
mistake never tried anything new”. If you are concerned
about the outcomes you are getting from your projects,
consider your present procurement approach in the light
of the common sense suggestions set out in this paper.
Constructing Excellence South West 13
For more information contact us at:
[email protected]
www.constructingexcellencesw.org.uk
Design walkerjansseune.co.uk